Time To Break Free From The Tyranny Of Rising House Prices

[Eddie_George]

Public opinion is turning against property inflation – and stability could open up all sorts of political and practical possibilities

A basic tenet of British political life since at least the 1980s has been that rising house prices are a good thing. Yet a poll for housing charity Shelter suggests that an extraordinary shift is taking place. Two-thirds of the public would apparently now prefer it if the cost of property remained stable, or even fell.

Perhaps it's not surprising, when house-price-to-income ratios have shot up in many parts of the country over the past 15 years, that the priced-out are starting to outnumber, and potentially outvote, the winners of the property lottery. But if the allure of inflating prices really has begun to wane, the political implications could be profound.

In her very first party conference speech as Conservative leader in 1975, Margaret Fatcher put home ownership right at the heart of what, even then, she was calling her "vision". "Let me give you my vision: a man's right to work as he will, to spend what he earns, to own property, to have the state as servant and not as master – these are the British inheritance."

Stirring stuff: and the pursuit of the well-intentioned and understandable notion of a man's right to own property (which, hopefully, we could now extend to women too) has shaped public policy and framed political debate over the ensuing decades – interpreted through a very Fatcherite, free-market lens.

It brought us the right to buy council homes and the liberalisation of mortgage lending, allowing millions more people to own the roof over their heads. And, most recently, it's brought us George Osborne's much-derided Help to Buy scheme.

But as prices rose amid stagnating supply, while demand was fuelled by ever-laxer lending rules, widening home ownership created a noisy interest group to oppose any policy that might impinge on householders' right, not just to own a property, but to use it to generate a speculative cash pile.

Council tax revaluations – which would levy a heavier charge on more valuable properties – became politically impossible (there hasn't been one since it was introduced in 1993). Fearsome nimbys have fought off repeated efforts to reform the planning system. And Labour – which did little to dislodge the neoliberal consensus – ended up taking on the Tories in an inheritance-tax-cut bidding war, as homeowners defended their "right" to hang on to every penny of their property windfall. Real house prices in the UK are almost two-and-a-half times higher than they were in the mid-1970s. In Germany, they've been flat for three decades.

Ultimately, chasing the goal of a property-owning democracy has had the perverse outcome of creating a world in which it is all but impossible for many families on average incomes to contemplate buying a house. Instead, they find themselves trapped in insecure, often poorly maintained rental accommodation, while taxpayers spend more than £20bn a year on housing benefit.

Perhaps not surprisingly then, a separate poll last week showed that 45% of voters favour the rather retro, dirigiste approach of government rent controls, against 43% who oppose them.

As part of its latest economic review, the Office for National Statistics tracked changes in the proportion of disposable (after-tax) income households have spent on various essentials over the past decade.

The politically salient rise in energy prices shows up clearly: looking at gas and electricity combined, utility bills now gobble up more than 3% of disposable income, against 1.8% in 2003.

But the real shocker is the rocketing price of housing – whether rent or the cost of owning a home – which now swallows up almost 21% of disposable income, compared to less than 15% a decade ago. It's a key element of what Ed Miliband calls the cost-of-living crisis.

Against that background – and with real wages stagnating – perhaps it shouldn't be surprising that the middle ground of public opinion is beginning to regard rising house prices as a burden instead of a boon. Even the Royal Institution of Chartered Surveyors – the voice of estate agents – has called for the Bank of England to consider capping house price inflation at 5%, to avoid destabilising booms and busts.

The policy framework for the property market has already shifted to reflect the lessons of the credit crisis: the Bank of England's financial policy committee has been given the power to tighten capital requirements on banks to bear down on particular types of lending – high loan-to-value ratio mortgages, for example – if it sees a bubble inflating. But an acceptance that stable house prices are desirable would open up political and practical possibilities that have been shut down for many years. Miliband's hint that a Labour government might try to force developers to build on unused land, instead of sitting on it, was dismissed by the Tories as "Stalinist", and the Lib Dems' demand for a mansion tax have repeatedly been rejected by coalition colleagues. But if the Shelter poll is right, the Tories may be misjudging the national mood.

Ramping up housebuilding – even through the unfashionable method of using taxpayer funds – is perhaps the most obvious solution, but Bank of England governor Mark Carney should stand ready to exercise the Bank's new powers freely: if necessary, targeting frothy London specifically.

All the parties should also take a long, hard look at the taxation of property, to ensure that it is as progressive as possible – and to discourage damaging practices such as hanging on to empty homes as a speculative investment. And making renting less insecure – rather than assuming it's a short-term phase – is also important.

It would be a brave politician who sought to ditch what Fatcher called "a man's right to own property". But the changing public mood suggests it's time to give housing policy a much-needed reboot.

She talks sense.

Edited November 10, 2013 by Eddie_George

[The Knimbies who say No]

Public opinion is turning against property inflation – and stability could open up all sorts of political and practical possibilities

She talks sense.

I disagree. "Price stability" = locked in HPI bubbles prices. This does not reduce the cost of housing. Shapps would be proud of her though, it's all he ever wanted.

@cheeznbreed 51m @UnicornHunting Grant Shapps would be proud of @heatherstewart3 advocating Tory policy of bubble preservation: https://www.gov.uk/government/news/grant-shapps-urges-house-price-stability-to-help-wannabe-homeowners …Reply

12:29 PM - 10 Nov 13

[Executive Sadman]

HAHA Thatcherite...free market lens.

Yeah, and bliar was a socialist too.

Newspapers, why do we even bother with them?

She talks sense.

No she doesnt.

"Ramping up housebuilding – even through the unfashionable method of using taxpayer funds"

She knows damn well the problem is the price of land, not a shortage of money, taxpayer or private being thrown at the 'problem' That IS the problem. Just another apologist for increased bureaucracy.

[Eddie_George]

I disagree. "Price stability" = locked in HPI bubbles prices. This does not reduce the cost of housing. Shapps would be proud of her though, it's all he ever wanted.

Okay, I think she talks some sense:

Two-thirds of the public would apparently now prefer it if the cost of property remained stable, or even fell.

She does mention that the public might like them to fall.

But as prices rose amid stagnating supply, while demand was fuelled by ever-laxer lending rules, widening home ownership created a noisy interest group to oppose any policy that might impinge on householders' right, not just to own a property, but to use it to generate a speculative cash pile.

Many commentators never mention lax lending as the cause of the bubble.

Council tax revaluations – which would levy a heavier charge on more valuable properties – became politically impossible (there hasn't been one since it was introduced in 1993). Fearsome nimbys have fought off repeated efforts to reform the planning system. And Labour – which did little to dislodge the neoliberal consensus – ended up taking on the Tories in an inheritance-tax-cut bidding war, as homeowners defended their "right" to hang on to every penny of their property windfall. Real house prices in the UK are almost two-and-a-half times higher than they were in the mid-1970s. In Germany, they've been flat for three decades.

I think most on here agreee with this.

Ultimately, chasing the goal of a property-owning democracy has had the perverse outcome of creating a world in which it is all but impossible for many families on average incomes to contemplate buying a house. Instead, they find themselves trapped in insecure, often poorly maintained rental accommodation, while taxpayers spend more than £20bn a year on housing benefit.

Taxpayers pay £20bn on housing benefit, yup.

Against that background – and with real wages stagnating – perhaps it shouldn't be surprising that the middle ground of public opinion is beginning to regard rising house prices as a burden instead of a boon.

Mentions stagnating wages, rather that just measuring house prices in real terms. It's the multiples of salary that determine prices.

All the parties should also take a long, hard look at the taxation of property, to ensure that it is as progressive as possible – and to discourage damaging practices such as hanging on to empty homes as a speculative investment.

Sounds like a nod to a LVT.

[Executive Sadman]

Taxpayers pay £20bn on housing benefit, yup.

Nearer £25bn this year, IIRC

[Bland Unsight]

She talks sense.

+1

I'm with you - some clear discussion of some (if not all) of the underlying parts of the problem.

[The Knimbies who say No]

She sounds like someone who is simultaneously trying to protect her equity and progressive credentials.

Maintaining current prices while increasing taxation is not going to do anything about expensive housing, except make it more expensive.

Her fundamental position is totally wrong. From the outset as she states that price stability could open up political and practical possibilities. No it can't, if you take the view, as she apparently does, that current prices are too high.

[i wouldn't disagree with some of the tax points raised btw]

Edited November 10, 2013 by The B.L.T.

[Bland Unsight]

She sounds like someone who is simultaneously trying to protect her equity and progressive credentials.

I believe that it is a condition of employment at The Grauniad.

Still seeing how wedded we are a nation to regarding rising house prices as an unalloyed good, it's not unreasonable to allow a transition phase between where we are today and the final position which will be that prices must come down and will come down.

[The Knimbies who say No]

I believe that it is a condition of employment at The Grauniad.

Still seeing how wedded we are a nation to regarding rising house prices as an unalloyed good, it's not unreasonable to allow a transition phase between where we are today and the final position which will be that prices must come down and will come down.

Says a lot that the MSM home of the progressive, egalitarian, social conscience of the nation has got as far on this issue as, err, Tory policy circa 2010.

[Pindar]

The problem stems from the fact that a tiny minority has a stranglehold on the use and availability of land. Then there's the government assistance to failed banks who lent recklessly with impunity. The only cure is for a complete change of the system which wrests power away from centuries old power structures. The problem is that the state works hand in hand with the moneyed class/banking cartel in a revolving door that really epitomises Mussolini's definition of fascism.

[Bland Unsight]

Says a lot that the MSM home of the progressive, egalitarian, social conscience of the nation has got as far on this issue as, err, Tory policy circa 2010.

Fair comment. But I think that reality is going to lead sentiment on this and that the great run of journalists will follow sentiment and thus always be three steps behind anyone actively trying to scent the blood in the water that prefigures changes to reality. There are still plenty of people who think you're flat out insane if you even believe that house prices can fall, (especially in the South East). The idea that they should fall and that they must fall is a whole other kind of crazy...

[slacker]

Do consider many journalists under 40 will be renting ex-local authority pads in London, whilst their editors will be living in Georgian terraces with weekend retreats in the counties.

There is palpable disquiet in much of the media now. It's no longer a simple partisan issue.

Frazer Nelson:

Is George Osborne’s ‘Help to Buy’ the equivalent of Bush’s sub-prime loans?

You can't sugar coat this. If you're under 40, high-earning professional, living in London - there is no hope of getting a property a quarter a nice as someone in that same job would have afforded a few years ago.

[XswampyX]

It wouldn't make a difference if house prices fell by 50% over night.

These 'under 40s' are now so far behind where the 60 some-things were, when they were aged 40, because of rampant house price inflation. There's an almighty problem already baked-in, ponzi house prices are just the icing on the cake.

The under 20's will be - £40,000 down before they even start paying rent!

Edited November 10, 2013 by XswampyX